Rightside Q3 Report: 15 New gTLDs With $2.5M In Sales, $8.6M From New gTLD Withdrawals

Rightside Group, Ltd. today announced financial results for the third quarter ended September 30, 2014. Total revenue for the three months ended September 30, 2014 increased 7% to $48.8 million compared to $45.5 million for the same period in 2013.

During the third quarter of 2014, Rightside recorded a gain on other assets, net of $8.6 million representing the gain on withdrawals of its interest in seven gTLD applications during the period.

As of September 30, 2014, 15 of Rightside’s owned and operated gTLDs were in “general availability” for an average of just 89 days each, but had generated over 80,000 registrations with almost $2.5 million in total cash sales. That is about $31.25 on average per domain. It seems that Rightside is not doing so well as Minds + Machines reported almost $3.5 million in revenue for 10 strings.

“Rightside’s solid growth in domain name services revenue for the third quarter demonstrates accelerating momentum through our vertically integrated registry-registrar platform and validates our margin expansion opportunity through new gTLDs,” said Chief Executive Officer Taryn Naidu. “Rightside Registry now has 23 owned and operated gTLDs in ‘general availability’ with five more expected to launch before year-end. At the same time, the organic revenue growth in our registrar business remains robust as our domain registrations continue to increase. After only three months as a stand-alone company, the foundation for growth that we put in place for Rightside is beginning to show its long-term potential.”

Financial Summary
(in thousands)

	Three months ended		Nine months ended
	September 30,		September 30,
	2014	2013	2014	2013
Domain name services	$ 41,332	$ 36,034	$ 118,432	$ 104,366
Aftermarket and other	7,442	9,472	21,583	35,254
Total revenue	$ 48,774	$ 45,506	$ 140,015	$ 139,620
Gain on other assets, net	$ (8,558)	$ (1,336)	$ (14,303)	$ (2,565)
Income (loss) before income taxes	$ 2,489	$ (3,928)	$ (4,964)	$ (6,907)
Income tax benefit	(1,608)	(1,366)	(1,650)	(1,930)
Net income (loss)	$ 4,097	$ (2,562)	$ (3,314)	$ (4,977)
Adjusted EBITDA (1)	$ (593)	$ 805	$ (3,648)	$ 8,884
(1) This Non-GAAP financial measure is described below and reconciled to GAAP net income (loss) in the accompanying table.

• Domain name services revenue for the three months ended September 30, 2014 increased 15% to $41.3 million compared to $36.0 million for the same period in 2013.  Organic growth of 10.5%, which excludes the acquisition related benefit from Name.com, was primarily due to an increase in domain name registrations associated with the continued onboarding of eNom wholesale partners.
• Aftermarket and other revenue for the three months ended September 30, 2014 decreased to $7.4 million compared to $9.5 million for the same period in 2013, primarily due to a decrease in the sales of domain names owned by Rightside.  On a sequential quarterly basis, the Aftermarket business was consistent with and performed favorably as compared to the stabilized level of $7 million for each of the first two quarters of 2014.
• Total revenue for the three months ended September 30, 2014 increased 7% to $48.8 million compared to $45.5 million for the same period in 2013.
• During the third quarter of 2014, Rightside recorded a gain on other assets, net of $8.6 million representing the gain on withdrawals of its interest in seven gTLD applications during the period.
• During the third quarter of 2014, Rightside recorded an income tax benefit of $1.6 million resulting from taxable losses in the U.S. during the period.
• Net income for the three months ended September 30, 2014 was $4.1 million compared to a net loss of $2.6 million for the same period in 2013.
• Adjusted EBITDA for the three months ended September 30, 2014 was ($0.6 million), compared to Adjusted EBITDA of $0.8 million for the same period in 2013. The change was primarily due to the decrease in Aftermarket and other revenue described above.

Business Highlights

• Rightside has signed registry operator agreements with ICANN for 33 gTLDs to date, including four gTLDs added during the third quarter of 2014, and has an interest in approximately 40 additional gTLD applications that have yet to be awarded to their ultimate registry operator.
• Rightside Registry launched eight new gTLDs into “general availability” during the third quarter of 2014 and now has distribution agreements with over 90 leading registrars to distribute its gTLDs.
• As of September 30, 2014, 15 of Rightside’s owned and operated gTLDs were in “general availability” for an average of just 89 days each, but had generated over 80,000 registrations with almost $2.5 million in total cash sales.
• Rightside expects to have 28 gTLDs in “general availability” by year-end 2014.
• With 16 million total domains under management as of September 30, 2014, including over 2 million domain names registered through its own retail outlets, Rightside remains one of the world’s largest registrars.
• Rightside signed agreements with vertical industry partners to integrate its technology and distribute its gTLDs, expanding its reach in key markets like legal and music.

Operating Metrics

	Three months ended
	September 30,
	2014	2013	% Change
End of period domains (1)	15.8MM	14.4MM	9%
Average revenue per domain (2)	$10.56	$10.12	4%
Renewal rate (3)	72.5%	69.5%
(1) A domain is defined as an individual domain name registered by a third-party customer on Rightside’s registrar platforms for which Rightside has begun to recognize revenue.
(2) Average revenue per domain is calculated by dividing domain name services revenue for a period by the average number of domains registered on Rightside’s registrar platforms in that period. Average revenue per domain for partial year periods is annualized.
(3) The renewal rate is defined as the percentage of domain names on Rightside’s registrar platforms that are renewed after their original term expires.

Liquidity and Capital Resources

• As of September 30, 2014, Rightside had cash and cash equivalents of $50.9 million, compared to $26.1 million as of its spin-off from Demand Media, Inc. on August 1, 2014.
• As of September 30, 2014, Rightside had $11 million of Letters of Credit outstanding under its $30 million revolving credit facility with Silicon Valley Bank, which was established on August 1, 2014 and matures in August 2017.
• As of September 30, 2014, Rightside had fully drawn its $30 million term loan credit facility with certain funds managed by Tennenbaum Capital Partners, LLC, which was established on August 6, 2014 and matures in August 2019.

Business Outlook

The following forward-looking information includes certain projections made by Rightside management as of the date of this press release. Rightside does not intend to revise or update this information, except as required by law, and may not provide this type of information in the future. Due to a variety of factors, actual results may differ significantly from those projected. The factors that may affect results include, without limitation, the factors referenced later in this announcement under the caption “Cautionary Information Regarding Forward-Looking Statements.” These and other risk factors are discussed in more detail in Rightside’s filings with the Securities and Exchange Commission.

Rightside reiterates the projections made in its second quarter 2014 financial results press release dated August 7, 2014, narrowing its projected total revenue range. In 2014, Rightside expects the following:

• Total revenue of $188 million to $192 million for 2014 ($185 million to $195 million projected previously)
• Adjusted EBITDA at break-even for the fourth quarter of 2014
• Registry Services revenue in the low single-digit millions of dollars for 2014